Melbourne

Avenue of opportunity

2013-05-29T05:00:00Z

Why St Kilda Road sales are charging ahead of Melbourne CBD

MELBOURNE, 28 MAY 2013 – St Kilda Road, Melbourne’s dominant non-CBD office precinct, has been a hive of activity in 2012/2013 with the percentage of total stock transacted more than double the amount transacted in the Melbourne CBD since the start of 2012.

Jones Lang LaSalle Director Sales and Investments, Paul Burns said “since the start of 2012, 18% of total stock along St Kilda Road was traded, compared to less than 8% in the CBD (excluding Docklands).”

According to Mr Burns the St Kilda Road office market has been traded heavily in the past 18 months for the following reasons:• The market is arguably the cheapest (leasing) market in Australia. The gap between achievable rents in St Kilda Road and other markets will inevitably close and many investors have become acutely aware of this potential.• An extremely limited number of properties for sale in the CBD has seen buyers move to other markets, with St Kilda Road satisfying the criteria of most.

“Everything for sale in the St Kilda Road market has been competitively sought, with private investors and wholesale syndicates proving the most active buyers” Mr Burns added.

Some recent sales along St Kilda Road are illustrated below:

​

541 St Kilda Road​

​324 St Kilda Road

​417 St Kilda Road

​615 St Kilda Road

Sale Date​

Nov 2012​

​Dec 2012

​Sep 2012

​Mar 2013

Sale Price​

​$28,000,000

​$26,000,000

​$81,300,000

​$34,830,000

Price per sqm​

$3,403​

​$3,661

​$3,974

​$4,082

Initial yield fully leased​

​9%

​8.27%

​9.06%

​8.12%

​NLA

​8,299 sqm

​7,101 sqm

​20,456 sqm

​8,532 sqm

WALE​

​4.10 yrs

4.18 yrs​

3.77 yrs​

10.42 yrs​

Mr Burns said “St Kilda Road is a good alternative market for those investors where cost is closely monitored. Of the 13 deals transacted since January 2012, the price per sqm averages approximately $3,290 compared with 19 CBD sales between January 2012 and May 2013 which averaged circa $5,203 per sqm.”

“The differential is exaggerated by a relatively high incidence of Queens Road buildings which sold at a much lower rate per square metre, however the difference is significant” Mr Burns said.

Several major corporates have relocated from Melbourne’s City Fringe and suburbs to St Kilda Road which has improved the lease profile in the precinct.

Examples include the Cancer Council of Victoria, relocating from their Carlton Headquarters to 615 St Kilda Road; Spotless originally located at 350 Queen Street in the CBD moved to 549 St Kilda Road; and Target who expanded into 324 St Kilda Road from their headquarters in Geelong.

Director of Office Leasing, Matthew Collins said “St Kilda Road offers among the most affordable rents in Australia, at an average of $328 per sqm net face pa. It provides city fringe tenants with a corporate location that has excellent public transport access without the price tag of the Melbourne CBD, where rents average $420 per sqm net face pa.“

The limited amount of transactions in the Melbourne CBD to May, 2013 is reflective of the very limited supply for sale, not a shortage of buyers. “We are liaising with numerous parties who are aggressively looking to buy in the CBD, but the thin turnover of stock is causing frustration and driving these investors to explore other markets such as St Kilda Road or the City Fringe” Mr Burns said.

Mr Burns went on to say “the reason a number of St Kilda Road vendors are prepared to sell, but very few CBD owners are willing to part with their assets, is arguably mere coincidence. Most St Kilda Road vendors have held the assets for many years and achieved their objectives (for example leased or refurbished), so it is generally just time to move on in a healthy buyer market”.

“Other than development sites, there are currently only two properties in the CBD being actively marketed for sale, both of which have asking prices of over $100 million. Unfortunately for buyers, there are no St Kilda Road properties currently on the market, which will inevitably put further upward pressure on values” Mr Burns said.